Japan welcomes LNG supplies from Sakhalin-2

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Feb. 13 -- Japanese Prime Minister Taro Aso and Russian President Dmitry Medvedev are scheduled to attend a ceremony Feb. 18 on Sakhalin Island to mark the onset of operations at the Sakhalin-2 LNG liquefaction plant at Prigorodnoye.

Under the Sakhalin-2 project, natural gas will be transported from offshore fields to the Prigorodnoye liquefaction plant for the production of 9.6 million tonnes/year of LNG, with 60% of it bound for Japan.

Under contracts of as long as 20 years, Russian LNG will account for 7% of Japan's total LNG imports, allowing the Asian nation to diversify its sources of energy supply.

At their Feb. 18 meeting, the Russian and Japanese leaders also will discuss possible funding for future LNG projects, such as Sakhalin-3, according to Eiichi Sasaki, energy representative for the Japan Bank for International Cooperation (JBIC).

In fact, Sasaki told delegates at the Russian Shelf 2009 conference that JBIC "is prepared to support Sakhalin-3 if Japanese companies are involved." He added that JBIC is primarily interested in projects in the Far East and Sakhalin that are focused on energy supply to Japan.

The Sakhalin-3 project includes the Veninsky block being developed by Russia's state-owned OAO Rosneft and China's Sinopec, and the Kirinsky, East Odoptinsky and Ayashsky blocks which have yet to be assigned.

Sakhalin-3 is expected to come on stream in 2017-20, according to Russia's draft Gas Industry Development Strategy, with peak production reaching as much as 28.6 billion cu m/year of gas.

The onset of supplies of LNG from Sakhalin-2 coincided with reports that a consortium of Japanese utility firms has agreed to a drastic cut in supplies from Indonesia, falling to 2-3 million tpy from 12 million tpy.

Raden Priyono, chairman of Indonesia's upstream oil and gas regulating body BPMigas, said that under the new agreement, the Japanese consortium will buy 3 million tpy of LNG during 2011-15, and 2 million tpy during 2016-20.

The consortium, comprised of Kansai Electric Power Co., Osaka Gas Co., Chubu Electric Power Co., Kyushu Electric Power Co., Toho Gas Co., and Nippon Steel Corp., will buy a total of 25 million tonnes of gas from Bontang LNG plants in East Kalimantan.

Priyono, who said that Japanese buyers have agreed to waive any penalties for undelivered LNG, added that the new contract price will be "much higher" than the price under previous contracts.

According to analyst BMI, the contract revisions, together with Indonesia's consistent failure to deliver contracted volumes over the past few years, will encourage Japan's "diversification of imports and greater reliance on other regional suppliers."

Contact Eric Watkins at hippalus@yahoo.com.

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